Monday, October 22, 2012

A lot of the damage done by finance to the real economy is simply a function of speed. Bad things happen when you can move money around faster than factories and labor. When I first became aware of this problem, I would make cracks like, "The problem with Wall Street is that they think long-term planning is deciding where to have tomorrow's lunch." Since the real economy operates at times on a schedule that can stretch into decades, it is obvious that short-term thinking can severely damage long-term projects.

But now we have reduced the trading lag in the financial world to nano-seconds. Even Mark Cuban believes this is madness. And virtually ALL this useless trading for trading's sake would disappear with a transaction tax. If it only slows down trading, a transaction tax is worth putting into place. Unfortunately, a handful of people are making big bucks from useless high-speed trading so a common-sense idea that would benefit virtually all of us becomes this huge political struggle with plenty of money to buy a large pile of corruption.

FINANCE

EU financial transaction tax finds enough supporters

Four more European nations have thrown their weight behind the introduction of a financial transaction tax. Procedures to initiate such a levy in some countries of the 27-member bloc now seem a mere formality.

Italy, Spain, Estonia and Slovakia on Tuesday said they would join other European nations in their bid to introduce a levy on financial transactions. The announcement was made during a meeting of EU finance ministers in Luxembourg.

The group of volunteers now comprises 11 countries, already two more than required by EU regulations to apply for a so-called enhanced cooperation accord to be agreed.

Germany and France had remained in the forefront of nations pushing for a financial transaction tax to be levied. The tax would be raised only in those nations which agree, with smaller nations including Austria, Belgium, Portugal, Slovenia and Greece also declaring themselves in favor.

No bigger deal possible

An EU-wide introduction of a 0.1-percent levy on the trade in bonds and shares had earlier failed because of Britain and Sweden categorically opposing such a measure.
Those two nations and many others have argues a transaction tax would drive away investment unless it was introduced everywhere in the world.

Germany's EU ambassador Peter Tempel said in Luxembourg the European volunteers for a transaction tax would officially submit their enhanced cooperation proposal to the EU executive in November. "We certainly hope that we can implement our scheme by the end of this year," Tempel told reporters. more

And yet another take on the same story. Here we discover that Countries like Sweden and the Netherlands oppose the tax because they believe it would harm their minor-league markets. They are probably right. If you eliminate all the useless trading, there goes 99% of it—and with it the reason for a bunch of stock exchanges to even exist.

10/09/2012
Taming the Markets

Eleven EU Countries Agree on Transaction Tax

Opposition to the tax remains fierce among several EU states.

The idea of a financial transaction tax in the European Union has been slowly gaining support over the last two years, with Germany and France advocating most vehemently in favor. Now they have convinced nine other EU states to join them -- though details remain scarce.

Finance ministers from 11 European Union countries agreed at a meeting in Luxembourg on Tuesday to support a tax on financial transactions, hoping to discourage risky trading while simultaneously raising revenue.

Germany and France, the EU's two largest economies, have long supported the idea of the tax, while countries like the Netherlands, Sweden and the United Kingdom remained staunchly opposed out of fears the tax could harm the competitiveness of their financial markets.

Sweden imposed a similar tax in the 1980s, only to lose much of its trading activity to London. Stockholm later repealed the law.

"We still think that the financial transaction tax is a very dangerous tax," Swedish Finance Minister Anders Borg said ahead of the meeting. "It will have a negative impact on growth."

There are still few details on how the tax -- referred to as the "Tobin tax" after the Nobel laureate American economist James Tobin who first proposed it in 1972 -- would work and how its revenue would be used. The European Comission, the EU's executive branch, has proposed taxing trades in bonds and shares at a rate of 0.1 percent per transaction and taxing trades in derivatives at 0.01 percent.

Beef Up the Budget

Some have proposed the revenue be put into a fund that would help struggling banks, while others -- particularly Brussels -- want the money to beef up the EU's budget. Austrian Finance Minister maria Fekter said that a model for how the tax might work would be presented by the end of the year in the hopes that it could be installed by 2014.

Talks on the tax are one element of European Union efforts to create banking rules that could help prevent a repeat of the debt crisis which continues to ravage euro-zone finances. European finance ministers also addressed efforts to create a euro-zone banking union involving centralized oversight of financial institutions. Thus far, however, agreement has not been reached on who would be responsible for such oversight or even which banks would be monitored.

At the Tuesday meeting, Dutch Finance Minister Jan Kees de Jager urged care in designing the oversight architecture. "It's important that we do it step-by-step and that the substance is leading and not the calendar," he said according to the Associated Press. His French counterpart Pierre Moscovici, however, expressed confidence that a deal could still be reached by the end of the year. France is still hoping for any supervisory regime to cover all 6,000 banks in the euro zone while Germany would like to see only larger institutions monitored.

The 11 countries supporting the financial transaction tax were Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain -- all part of the euro zone. The countries still have to put their plans in writing and submit it to Brussels, according to European Tax Commissioner Algirdas Semeta.

Imposing the tax across the entire EU is impossible without the support of more countries, however the EU treaty allows for "enhanced cooperation" in policy matters when at least nine states come together in agreement.

Countries that choose to opt out of such an agreement could also block the action, but the non-participating countries said at the meeting that they would not plan on doing so. more